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Posted on 22 November 2011 | 3,766 views

Investing in Stocks on Thanksgiving Week

The week of Thanksgiving stock trading has ranked among the best weeks of the year for the S&P 500 for the past 70 years and here’s what the U.S. stock market typically serves up during Thanksgiving week.

With the cost of Thanksgiving Dinner rising 13% and setting another record high this year, it could be tempting to chase any seasonal bounce in the market.

Since the Thanksgiving holiday was officially recognized in 1941, the S&P 500 has averaged a 0.49% gain for the week, with positive moves 64% of the time, according to Bespoke Investment Group research. As a comparison, since 1941 the average one-week return for the S&P 500 is 0.16%, and positive 56% of the time.

The Wednesday before (Thanksgiving) and the Friday after have been bullish days, said Jeff Hirsch, editor-in-chief of the Stock Trader’s Almanac — “This is a short-term trading strategy.”

That’s been true for 35 years with two notable exceptions: 1987 and 2009 — this short-term timing strategy works best if you buy into weakness, sell into any rally on Wednesday, and be mostly out on Friday.

Thackray’s 2012 Investor’s Guide notes that, “The day before Thanksgiving and the day after have had an average cumulative return by the S&P 500 Index of 0.8 per cent per period.” During the past 61 periods, the Index gained in 50 periods, was unchanged in three periods and slipped in eight periods.

Strength during the period is influenced by a difference in sentiment between institutional and individual investors. Most institutional investors and market makers have a diminished impact on equity markets because they close their books at midday on Wednesday, the day before Thanksgiving. They take an extended long weekend including a holiday on Friday, the day after Thanksgiving. Individual investors have a greater impact on equity markets. They are in a buoyant pre-Christmas mood.

Thanksgiving Day in the U.S. is the start of the Christmas Shopping Season. The day after Thanksgiving Day is known as “Black Friday” and traditionally has been the busiest shopping day of the Christmas season. It became known as “Black Friday” because historically that is the date when retailers finally turn a profit for the year. Their profit and loss statement literally turns from red to black.

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